Summary

Micron Technology, Inc. delivered a record-breaking quarter with Q3 FY26 revenue of $41.5B, up 346% YoY, and non-GAAP gross margin surging to 84.9%.

MU's growth is powered by AI data center demand and transformative long-term take-or-pay contracts, securing ~50% of revenue and reducing cyclicality.

Management guides for $50B revenue next quarter and $30B in free cash flow for Q4 FY26, fully funding aggressive CapEx from operational cash generation.

I estimate MU's EPS at $114 in 12 months, supporting a $1,725/share price target by July 2027 at 15x P/E, with upside potential if growth outperforms.

Micron Technology, Inc. (MU) reported the most important quarterly earnings last week in its 47-year-long history. And the market's reaction wasn't anything else, other than confusion. The day after the earnings, Micron's stock skyrocketed 15.7%, reaching its all-time high of $1,255/share, and in the following days, the stock gave up some of the earlier gains. Today, Micron trades at $1,030/share. Despite the volatility, year-to-date Micron is still up 260%, and in the last 12 months the stock is up 7x.

The post-earnings price action would normally suggest we've hit the top, and the growth story is over. Today, I'll argue otherwise. The market is nervous, and it doesn't come as a surprise, given the massive CapEx spending behind the memory chip rally.

I've covered Micron last time in May, when the stock price was ≈$750/share. Back then I claimed that despite the massive rally, Micron's stock isn't expensive, with forward growth doing all the heavy lifting. Given the high cyclicality of memory stocks, I've hinted at having a potential exit strategy by 2027 or the beginning of 2028. In respect to valuation, I was right, though, with the exit strategy, I may have been too cautious. Let's revisit this today.

Micron's Most Important Quarter Ever

That's right. Q3 FY26 has proven to be Micron's most important earnings ever reported. In Q3, Micron's revenue has set a record at $41.5B, up 346% year-over-year. Quarter-over-quarter revenue is up 74%. Analyst consensus was $35.8B; talk about a beat... Non-GAAP EPS was $25.11 vs. the expectation of $20.7. Year-over-year, that's a growth of 13x. Non-GAAP gross margin hit an extreme 84.9%. A year ago, gross margin was 39%. I recommend reading it again. This quarter wasn't an incremental improvement compared to last year, but it was a massive leap and improvement of fundamentals year-over-year. Micron today is a different business. This growth trajectory follows a similar story to Nvidia (NVDA), which played out in the last 2-3 years. And, don't forget, in 2023, Micron reported a -$5.8B loss when the memory cycle hit rock bottom.

As you would expect, the main growth engine is the build-out of AI data centers, where memory chips are playing an increasingly more important role as we are entering the #2 phase of AI buildout focused on Agentic AI. During the quarter, Micron's core data center revenue grew 7x to $11.5B, and cloud memory grew 4x to $13.8B. The firm sold $5B worth of data center SSD. Even the most boring sectors, like embedded applications and automotive, grew steeply thanks to the limited supply and extreme price of memory chips. Consumers can expect the next-gen Apple (AAPL) MacBooks, iPads, and iPhones to come at a higher price, as well as new vehicles, given how inflated the prices of memory chips are.

Micron's management guided for $50B in revenue in the current quarter, well ahead of $43.6B previously expected by analysts.

Is Memory Still A Commodity?

I think this is the most burning question. For the past 30 years, the answer was "yes," as memory chips were a purely commodity, with very minor differentiation between the key players like Micron, SanDisk (SNDK), SK hynix (SKHY), or Samsung (SSNLF). During periods when demand would exceed supply, prices skyrocket (both memory chips and their stocks), all vendors build extra production capacity, and then prices fall by 50-70%, driving losses in the subsequent years. In my previous article, I've warned about this, that this will likely occur again. Q3 2026 earnings and the latest deals are making me rethink this.

During the last quarter, Micron signed 16 strategic customer agreements. 14 of those combined are worth over $100B deals during their remaining life, and all of these are structured take-or-pay, which in plain English means either the customer takes the agreed quantity of memory chips or has to pay anyway. This clearly sets a floor underneath the cyclicality and unlocks for Micron more recurring revenue and a stable business model. The firm's management expects that roughly 50% of Micron's revenue will fall underneath these contracts, backed by $22B in cash deposits and commitments. This is a game-changer and a structural advantage for Micron, which didn't exist back in 2018 or 2022, and this should ultimately lead to reduced revenue choppiness and stock price volatility in the future. Last month, Micron reported that the firm signed an agreement with General Motors (GM) and Anthropic (ANTHRO) to secure supply and accelerate innovation over the next years.

The other thing that I continue to come back to is that during previous cycles, all memory-chip makers dumped extra capacity into a weakening market for spot prices, which led to the crash. This cycle is different. Long-term agreements were signed, and instead of dumping the inventory in the open market, the future supply will exit via these contracts. Those companies that aren't willing to commit to long-term contracts with either of the chipmakers may find themselves without enough memory chips. If something is certain, then it's the fact that the super cycle is playing into Micron's cards, putting it in an advantageous position to negotiate on its own terms the supply contracts. With commodity businesses, it's often a race to the bottom, but we don't see this play out. For instance, if we follow demand, full HBM production for 2026 is already contracted with a pre-agreed pricing and volume. Micron also increased the TAM of HBM to $100B by 2028. Today, the size of the market is ≈$32B.

Don't Ignore The Risk

Speaking with fellow investors, the bear case I hear the most often is that the extra production capacity deployed will lead to overcapacity and the firm will bleed, and instead it should rather save cash during this super cycle. What this argument is missing is that Micron, with its 80%+ gross margin, is a cash machine. The management is guiding for $30B in free cash flow in Q4 FY26 alone. Even if we look at the ballooning CapEx, which was $8.1B in FY24, $14B in FY25, and $27B (planned) in FY26, we see that the whole FY26 CapEx will be covered by a free cash flow from Q4.

During the previous cycles, high CapEx crushed free cash flow and forced the firm to use cash from the balance sheet in the worst possible times, adding fuel to the fire. This time around, what the bears are missing is that the CapEx build-out is financed from contracted cash flow. This is what gives Micron financial flexibility right now and why I view Micron's mega fab in New York as the right move forward.

Micron's Valuation

Let's talk about valuation; this is where I see many investors making a mistake. Especially after the stock went up 7x in a span of 12 months.

The Blended P/E (last 2 quarters and next 2 quarters) is right now 16.6x.

If we look at Micron's valuation purely from a 12M-forward perspective, this puts the EPS at $114/share by 1st July 2027, and against today's price, we are talking about a forward P/E of 9.12x.

FactSet is expecting EPS growth as follows:

FY26 Expected EPS: $73.12E, 782% YoY growth.

FY27 Expected EPS: $154.66E, 112% YoY growth.

FY28 Expected EPS: $166.34E, 8% YoY growth.

This is a meaningful increase from the EPS expected when I wrote my last article in May, driven by stronger Q3 earnings and the more optimistic guidance for Q4. Previously the analysts were also anticipating an EPS decline in FY28, pointing to the end of the cycle, but I already explained earlier why this is unlikely to materialize.

Micron's historical valuation was anywhere between 3 and 50 P/E, underscoring the historical cyclical nature of the business. During periods without excess demand or excess capacity, the valuation is more 14-20x P/E, giving us a sense that the P/E we are paying today isn't extreme at all.

This brings me to my price target and the title of this article. If we assume the $114 EPS in 12M time and apply an average valuation of 15x P/E, which is actually a contraction from today's 16.6x, we would land at $1,725/share by July 2027. Naturally, this is just a price target, and the earnings forecast can move higher or lower, depending on how the overall Hyperscalers CapEx story develops, but I see this as a base case, with 15x P/E as a fair value for Micron.

A bull case would be an increase to P/E of 17-20x, which would put the price at $1,955 - $2,300.

I don't expect any meaningful extra production capacity deployment before 2028, so while the competition is fierce from SK hynix and Samsung, the combination of strong demand and lack of supply will hold the prices of memory chips high for longer than I previously expected.

Investor's Takeaway

The evidence is pointing to a reversal in the memory-chip industry behavior, and what used to be a commodity may be less volatile in the future, supported by long-term contracts, which set a floor on price and revenue for all the peers.

The super cycle is playing into Micron's cards, giving the company an edge to dictate its own terms and negotiate favorable conditions, as memory chip prices remain very high, driven by a lack of capacity. Yes, new capacity will be deployed, but unlikely ahead of 2028, giving a lot of breathing room to the industry. Still, I don't think we've moved away completely from the commodity-like cycles, but it will be delayed, perhaps into 2029-2030.

Micron is in a strong position right now to capitalize on the high prices and limited availability, agreeing to long-term lucrative contracts, and its EPS will grow massively in the next couple of years. I am estimating $115 EPS in 12M time, and if we apply 15x P/E (which is my fair value), Micron's stock price could reach $1,725 by July 2027. If the EPS growth surprises to the upside, it could be well above $2,000.